Relational Contracts and the Value of Relationships

By Marina Halac

American Economic Review, April 2012

This article studies optimal relational contracts when the value of the relationship between contracting parties is not commonly known. I consider a principal-agent setting where the principal has persistent private information about her outside option. ...

Competition through Commissions and Kickbacks

By Roman Inderst and Marco Ottaviani

American Economic Review, April 2012

In markets for retail financial products and health services, consumers often rely on the advice of intermediaries to decide which specialized offering best fits their needs. Product providers, in turn, compete to influence the intermediaries' advice thr...

Estimating the Peace Dividend: The Impact of Violence on House Prices in Northern Ireland

By Timothy Besley and Hannes Mueller

American Economic Review, April 2012

This article exploits data on the pattern of violence across regions and over time to estimate the impact of the peace process in Northern Ireland on house prices. After establishing a negative correlation between killings and house prices, we estimate th...

Screening, Competition, and Job Design: Economic Origins of Good Jobs

By Björn Bartling, Ernst Fehr, and Klaus M. Schmidt

American Economic Review, April 2012

High-performance work systems give workers more discretion, thereby increasing effort productivity but also shirking opportunities. We show experimentally that screening for work attitude and labor market competition are causal determinants of the viabili...

Thar She Bursts: Reducing Confusion Reduces Bubbles

By Michael Kirchler, Jürgen Huber, and Thomas Stöckl

American Economic Review, April 2012

To explore why bubbles frequently emerge in the experimental asset market model of Smith, Suchanek, and Williams (1988), we vary the fundamental value process (constant or declining) and the cash-to-asset value ratio (constant or increasing). We observe h...

Information and Industry Dynamics

By Emin M. Dinlersoz and Mehmet Yorukoglu

American Economic Review, April 2012

This paper develops a model of industry dynamics where firms compete to acquire customers over time by disseminating information about themselves in the presence of random shocks to their efficiency. The properties of the model's stationary equilibrium ar...

Carrot or Stick? The Evolution of Reciprocal Preferences in a Haystack Model

By Florian Herold

American Economic Review, April 2012

We study the evolution of both characteristics of reciprocity: the willingness to reward and the willingness to punish. First, both preferences for rewarding and preferences for punishing can survive provided that individuals interact within separate g...

Violent Conflict and Behavior: A Field Experiment in Burundi

By Maarten J. Voors, Eleonora E. M. Nillesen, Philip Verwimp, Erwin H. Bulte, Robert Lensink, and Daan P. Van Soest

American Economic Review, April 2012

We use a series of field experiments in rural Burundi to examine the impact of exposure to conflict on social, risk, and time preferences. We find that conflict affects behavior: individuals exposed to violence display more altruistic behavior towards the...

What Do Emissions Markets Deliver and to Whom? Evidence from Southern California's NOx Trading Program

By Meredith Fowlie, Stephen P. Holland, and Erin T. Mansur

American Economic Review, April 2012

An advantage of cap-and-trade programs over more prescriptive environmental regulation is that compliance flexibility and cost effectiveness can make more stringent emissions reductions politically feasible. However, when markets (versus regulators) deter...

Measuring Economic Growth from Outer Space

By J. Vernon Henderson, Adam Storeygard, and David N. Weil

American Economic Review, April 2012

We develop a statistical framework to use satellite data on night lights to augment official income growth measures. For countries with poor national income accounts, the optimal estimate of growth is a composite with roughly equal weights on conventional...

Credit Booms Gone Bust: Monetary Policy, Leverage Cycles, and Financial Crises, 1870-2008

By Moritz Schularick and Alan M. Taylor

American Economic Review, April 2012

The financial crisis has refocused attention on money and credit fluctuations, financial crises, and policy responses. We study the behavior of money, credit, and macroeconomic indicators over the long run based on a new historical dataset for 14 countrie...

What Drives US Foreign Borrowing? Evidence on the External Adjustment to Transitory and Permanent Shocks

By Giancarlo Corsetti and Panagiotis T. Konstantinou

American Economic Review, April 2012

The joint dynamics of US net output, consumption, and (the market value of) foreign assets and liabilities, characterized empirically following Lettau and Ludvigson (2004), is shown to be consistent with current account theory. US consumption is virtually...

International Income Inequality: Measuring PPP Bias by Estimating Engel Curves for Food

By Ingvild Almås

American Economic Review, April 2012

Purchasing power-adjusted incomes applied in cross-country comparisons are measured with bias. This paper estimates the purchasing power parity (PPP) bias in Penn World Table incomes and provides corrected incomes. The bias is substantial and systematic: ...

Behavioral Foundations of Microcredit: Experimental and Survey Evidence from Rural India

By Michal Bauer, Julie Chytilová, and Jonathan Morduch

American Economic Review, April 2012

We use experimental measures of time discounting and risk aversion for villagers in south India to highlight behavioral features of microcredit, a financial tool designed to reduce poverty and fix credit market imperfections. The evidence suggests that mi...

Search, Design, and Market Structure

By Heski Bar-Isaac, Guillermo Caruana, and Vicente Cuñat

American Economic Review, April 2012

The Internet has made consumer search easier, with consequences for prices, industry structure, and the kinds of products offered. We provide an industry model with strategic design choices that explores these issues. A polarized market structure results:...

Paying a Premium on Your Premium? Consolidation in the US Health Insurance Industry

By Leemore Dafny, Mark Duggan, and Subramaniam Ramanarayanan

American Economic Review, April 2012

We examine whether and to what extent consolidation in the US health insurance industry has contributed to higher employer-sponsored insurance premiums. We exploit the differential impact across local markets of a national merger of two insurers to identi...

Erratum: Macroeconomic Effects of Financial Shocks

By Urban Jermann and Vincenzo Quadrini

American Economic Review, April 2012

Front Matter

American Economic Journal: Microeconomics, May 2012

To Review or Not to Review? Limited Strategic Thinking at the Movie Box Office

By Alexander L. Brown, Colin F. Camerer, and Dan Lovallo

American Economic Journal: Microeconomics, May 2012

Film studios occasionally withhold movies from critics before their release. These cold openings provide a natural setting to apply laboratory-developed models of limited strategic thinking to the field. In a set of 1,303 widely released movies, cold op...

Ideologues Beat Idealists

By Sambuddha Ghosh and Vinayak Tripathi

American Economic Journal: Microeconomics, May 2012

Our model considers a majority election between two candidates—an ideologue committed to a fixed policy and an idealist who implements the ex post choice of the majority. Voters are aware that their individual rankings of policies may change after t...